ESA Oversight is Broken—Here’s How to Fix It

EdChoice and SPN offer a fresh take on how to create the best incentives and eliminate red tape in school choice programs

As education savings accounts expand across the country, one of the biggest questions policymakers face is how to maintain financial accountability without undermining the flexibility that makes ESAs valuable.

A new report from EdChoice and the State Policy Network, “Rethinking ESA Policy Design,” addresses that challenge head-on. Written by Katherine Bathgate, an EdChoice Advisor, the report outlines how states can make sure ESA programs have incentives to encourage responsible spending without creating unnecessary red tape for parents or administrators.

The report does not call for relying on pre-approval systems that treat families as guilty until proven innocent. Instead, it recommends a smarter approach: design ESA programs that trust parents first and enforce accountability when needed. Bathgate makes a compelling case for shifting away from the current model of “permission-based” spending, which often frustrates families and stifles innovation: “If baking soda is bought for a science experiment, it’s a legitimate expense. If bought for cleaning, it’s fraud. Should regulators ban baking soda altogether?” she asks.

The report draws on the record of other public programs that operate on post-transaction accountability, such as Health Savings Accounts and FEMA disaster relief. Both assume good faith and impose penalties only when misuse occurs. They encourage individuals to be thoughtful with their spending, without making them jump through bureaucratic hoops every time they make a purchase.

In ESA programs today, misaligned incentives also cause tension between parents and third-party administrators. Because there’s little downside, parents are encouraged to ask for the moon, while administrators fear public backlash if a high-dollar request makes headlines. This puts both parties at odds and creates inefficiencies.

To fix this, the report proposes a two-pronged solution:

1. The Carrot: Let families roll over unspent ESA funds year to year and into postsecondary education. This encourages frugal, thoughtful spending.
2. The Stick: Enforce meaningful penalties for misuse, including removing families from the program or requiring them to reimburse the state. Parents should be required to sign affidavits acknowledging these rules and overseers should conduct audits to ensure compliance.

Ultimately, “Rethinking ESA Policy Design” offers a roadmap for how states can maintain trust in ESA programs while preserving the choice and customization that families need. With recommendations for specific actions, it’s a must-read for anyone working to improve school choice policy—and a powerful reminder of how effective incentives can lead to better outcomes for all.